Comcast Corp - Class A (CMCSA) — Q1 2023 Earnings Call Transcript

Thank you, operator, and welcome to our first quarter 2023 earnings call. You'll first hear from Brian Roberts, Mike Cavanagh, and Jason Armstrong, then Dave Watson will join us and be available for Q&A. As a reminder, beginning this first quarter we have changed our presentation of segment operating results around two primary businesses; Connectivity & Platforms and Content & Experiences. For additional details please refer to our 8-K issued on March 13, which can be found on our Investor Relations website. I will now refer you to Slide 2 of the presentation accompanying this call, which can also be found on our investor relations website, which contains our Safe Harbor disclaimer. This conference call may include forward-looking statements subject to certain risks and uncertainties. In addition, during this call, we will refer to certain non-GAAP financial measures. Please see our 8-K and trending schedule issued earlier this morning for the reconciliations of these non-GAAP financial measures to GAAP. With that, I'll turn the call over to Brian.

Thanks, Marci, and good morning, everyone. Before we get into the quarter, let me just acknowledge the news that you all saw earlier this week, obviously a tough moment. But we are so fortunate to have a fabulous and tenured leadership team at NBCUniversal. If you go down the list, you'll see many of them have been leading their divisions within the company for at least 10 years and are truly the best in the business. We're also lucky to have Mike Cavanagh step in at the helm at NBCUniversal while also remaining President. Mike is a fantastic executive and operator that many of you know well, and he'll work closely with each of the management team at NBCUniversal to continue our excellent momentum. Mike, alongside Jason Armstrong will lead these earnings calls on a go-forward basis. Today, you'll hear from them about our strategic focus and drivers of growth now and over the long-term, and Jason will go into much greater detail on the first quarter results. Dave Watson and I are here for the Q&A and you'll hear a lot more about the great momentum of our connectivity and platform businesses later in the call. Dave, thanks for getting off to a great start this year. So before I hand it over to Mike, I just want to share my quick perspective on our recent performance. This really was a strong quarter and start to the year, especially within the context of what continues to be a choppy macro environment. We grew adjusted EBITDA by 3% and adjusted EPS by 7%. In addition, we generated $3.8 billion of free cash flow and returned $3.2 billion of capital to shareholders, all while continuing to invest importantly in a number of major initiatives, which is a real testament to our very healthy balance sheet. Two things amongst many highlights in particular that stand out for me and I'm really proud of, one is the animation business. By strengthening and combining our capabilities across DreamWorks and Illumination led by Chris Meledandri, we've had tremendous success creating franchises that people know and love all over the world. Despicable Me, Shrek, Pets, Minions, and more recently Puss in Boots, and now Super Mario Bros., which just broke a number of records including the biggest worldwide opening of any animated film of all time. These are the results of the strategic decision we made years ago to become a leader in animation and the conviction we've had to continue to invest in the business even during the depths of the pandemic, which are now clearly paying off. The second is Connectivity & Platforms. The significant margin expansion that we achieved this quarter, coupled with a 4.5% ARPU growth in domestic residential broadband demonstrates successful discipline and excellent management in a challenging competitive environment. We're focused on delivering a superior experience and profitably serving our customers, and it shows. And with that, let me now hand the call over to Mike.

Thanks, Brian. We had a great start to 2023 and have set ourselves up for another strong year. We have amazing talent at all levels of our company and DNA that fosters creativity and collaboration, resulting in operational excellence that is second to none. Coupling that with our position as a scaled leader in very large and profitable markets with tens of millions of customers paying us over $100 per month, as well as hundreds of millions of TV and streaming viewers, we have an extremely healthy balance sheet enabling us to invest in all of our strategic opportunities and for great returns, while also returning a healthy amount of capital to shareholders. As pleased as we are with our results in the first quarter, any company's performance in a quarter is just a milestone of progress against a longer-term strategy and plan. And so before we dive deeper into the details of the last few months, I'd like to spend a few minutes talking about the drivers of our growth over the longer term and where we're focusing most of our time and resources. I put these in four buckets: residential connectivity, business services connectivity, our theme parks and experiences, and our premium content creation. I'll start with residential connectivity, which is comprised of domestic broadband, domestic wireless, and international connectivity. Broadband is a fantastic business. It's a great product for the consumer and demand continues to rise. People are connecting more and more devices to our network and they're consuming a tremendous amount of data. Right now, the average monthly data usage for a broadband customer that doesn't take video from us is nearly 700 gigabytes, and there is a related increase in the importance of reliability and speed with roughly one-third of our customers at one gigabit or higher and nearly three-quarters at or above 400 megabits. For us, the consumer's already high and increasing level of expectation for their broadband experience is an important trend. And while the marketplace is competitive, such that adding subscribers in the near-term is likely to be a challenge, I fully expect we will eventually return to subscriber growth. We have the best hand in the game to win against all the competing technologies, whether it's fiber or fixed wireless. We view fiber as our long-term competitor. We've been successfully competing against fiber for about 20 years, yet still built a base of 32 million broadband customers over this time period. A more recent competitor is fixed wireless, which we view as a substandard and temporary solution for a certain segment based on their needs at this moment in time. Our approach is to compete rationally. We know how to segment the market. We have packages that cater to customers who want the very fastest speeds and premium features and others that are more targeted to those looking for value-oriented solutions. We trialed a couple of offers targeted to this lower end during the quarter. We were pleased with the results and will continue to remain nimble and respond competitively in each segment. In the meantime, as the residential connectivity market and macroeconomic environment continue to evolve, our focus will be on serving our existing base, growing broadband ARPU, increasing our penetration, and making proactive investments to expand our footprint at the fastest pace in our history. You saw us do this all of last year and in the first quarter, and I expect this trend to continue. Our second major growth opportunity, business services, which is approaching $10 billion in annual revenue, is growing at mid-single digits with newly reported margins just shy of 60% and delivering adjusted EBITDA growth in the high single-digit range. Here too, our advanced and adaptable network infrastructure is much better suited to serving commercial and government locations compared to the legacy wireline and wireless providers. We move fast and are more capable of reliably and cost-effectively meeting our customers' needs. We already have over 2.5 million domestic business customers, more than any other competitor, and are targeting a $50 billion market opportunity within our footprint and a $70 billion to $100 billion total market opportunity that we can now go after by leveraging our technology and partners outside of our footprint. Our third major growth opportunity is in creating experiences from our own intellectual property as well as special IP that we license from others and bring to life at our theme parks, like Harry Potter or Nintendo's characters like Mario. Our parks are resonating with our customers and this segment is clearly on a roll. Japan has come roaring back and Beijing returned to profitability following last year, when both were operating under COVID-related restrictions. And on the domestic side, Orlando continues to do well and Hollywood just opened Super Nintendo World with great success. This outstanding performance provides us with even more confidence that the investments we are making in new lands and attractions will also generate strong returns and I'm excited for what's to come. Donkey Kong, another Nintendo land, is to open in Japan in 2024, Epic Universe in Orlando in 2025, as well as the smaller park concepts that we recently announced, a horror-themed experience in Las Vegas, and a new park in Texas that's specifically designed for younger guests and their families. Our fourth growth area is content and especially on the streaming side. We have a decade's deep library of iconic films and television and we spend over $20 billion each year to produce and provide programming that spans every genre; sports, news, entertainment, dramas, and film, which has resulted in the broadest reach of any media company. Over 100 million people engage with our content every month. In film, we were number two in the worldwide box office last year with Jurassic, Minions, and Halloween. Based on the current course, we are trending to do even better in 2023. We've started the year off with home runs and terrific momentum, carryover from Puss in Boots, the success from Megan, and now Super Mario Bros., which in just three weekends has already crossed $875 million at the global box office. We're really proud of our animation business. We've been in the movie business for a hundred years, and it's exciting how we've been able to create and monetize our entire movie slate in animation and beyond in so many ways, including the innovative changes we've made in movie windowing. We made the strategic decision to put our Pay-One window on Peacock, which really kicked in at the end of last year. We now have one of the most robust movie offerings on streaming. The hits we have at the box office roll onto Peacock, and this is proving to be both a successful acquisition and retention tool. Add to that the strength of content from our TV studio, which powers the content on NBC and helped make us number one for many years from all the Dick Wolf procedurals and SNL coupled with highly popular content on Bravo, this all goes to Peacock the next day. Add to this our originals where we're just getting started. Shows like Poker Face, which launched and immediately landed near the top of Nielsen's U.S. Streaming Original List, and we have lots more coming. On top of all this, we have an incredible lineup of sports; Sunday Night Football, Premier League, and soon Big 10. We believe we have the right strategy for Peacock and one that's suited to our strengths. Premium content with a dual revenue stream, both advertising and subscription fees, and we're encouraged by our results so far, growing paid subscribers and engagement levels to roughly 20 hours per subscriber per month fueling strong growth in advertising revenues. We're investing, but the results we are seeing give us confidence that we are on the right path for Peacock to break even and grow from there. Looking across our entire organization, I couldn't think of a more advantageous position to be in to monetize the increasing expectations and demand, as well as the changing habits of the global consumer. We're the best broadband company with the best content that can be accessed over the best distribution and aggregation platforms. I'm excited about all of our areas of growth. Together, they represent the majority of our revenue and our businesses with high incremental margins. As a result, these growth areas should become the dominant driver of our financial results for years to come. With that, I'll hand it over to Jason to talk about the quarter.

Thanks Mike and good morning everyone. In late February, we announced that starting this quarter we will be reporting our results in two reportable business units; Connectivity & Platforms and Content & Experiences, more closely align our like-minded businesses, reflect how we run our company and highlight our opportunities for growth as a globally integrated content distribution company. We're also providing more disclosure around areas that have become increasingly important to our overall results, namely Business Services and Peacock. Let's start with our consolidated first quarter results. Total company revenue of $29.7 billion declined 4% due to the tough comparison to last year's Winter Olympics and Super Bowl, as well as the negative impact of foreign currency. While our total company adjusted EBITDA grew 3% thanks to continued strong operating leverage at our high margin Connectivity & Platforms business. Excluding the impacts of the Winter Olympics and Super Bowl and adjusting for constant currency, total company revenue increased 1.5%. We grew adjusted earnings per share by 7% to $0.92 and generated $3.8 billion of free cash flow while returning $3.2 billion of capital to shareholders in the first quarter. This is in addition to significant investments to support and grow our businesses, including our transition to DOCSIS 4.0 and footprint expansion in broadband, the construction of Epic, as well as a consistent flow of new lands and attractions at our theme parks, and content production at our studios, which feeds into Peacock, a robust third-party licensing opportunity and a really successful film business. When taken together, these investment areas generated over half of total company revenue in the first quarter with growth of 10% year-over-year. Now, let's turn to our business results starting with Connectivity & Platforms. As a reminder, our largest foreign exchange exposure is the British pound, which was down over 9% year-over-year. So in order to highlight the underlying performance of the business, I'll speak to our results at Connectivity & Platforms on a constant currency basis. Revenue was flat this quarter, but this is worth unpacking. Our core connectivity revenues, residential and business, grew over 7% to $10 billion, while video, advertising, and other revenues declined 7% to $9.8 billion. Year-over-year, we generated 160 basis points of margin expansion for Connectivity & Platforms on a total basis. This is reflective of our strategy of investing in and driving growth in high margin businesses while protecting profitability in businesses with secular headwinds through disciplined cost control. To get into more detail, residential connectivity revenue grew by 8% with 5% growth in domestic broadband, 27% growth in wireless, and 18% growth in international. In business services connectivity revenue continued to grow at a healthy mid-single digit pace. Our domestic residential broadband customer base this quarter remained stable over both the last year and in the quarter, with churn remaining below pre-pandemic levels. While we had some success towards the end of the quarter with a couple of offers targeting the lower end of the market, the broadband environment remains highly competitive right now, particularly at the lower end. As such, our view remains that 2023 will be a challenging period for us to add subscribers. Our outlook for growth and our strategy has been consistent. We will compete aggressively, but do so in a financially disciplined way. While we expect to return to growth in broadband subscribers over time, during this interim period, as well as over the longer-term, we will focus on protecting and growing broadband ARPU, and we're pleased with the 4.5% year-over-year increase in ARPU in the quarter. We expect continued strong revenue growth over the course of 2023 and expect ARPU will be the primary driver. Growth in domestic wireless revenue was a function of higher service revenue, driven by continued strong momentum in customer lines, which are up 1.4 million or 32% year-over-year to 5.7 million in total, including the 355,000 lines we just added, which was a record high for a first quarter. There is clearly demand for a converged offering that delivers reliable and fast speeds both in and out of the home. We are extremely well positioned to take advantage of this trend, and have a long runway for growth as less than 10% of our broadband accounts currently take our mobile offering. A new disclosure category for us is international connectivity. Roughly two-thirds of international connectivity revenue is broadband, growing at mid-teen levels. The remaining one-third is wireless, of which a big portion comes from device sales and therefore tends to fluctuate with the timing of device launches. The rest of wireless is service revenue, which is growing nicely due to additional customer lines and healthy ARPU growth. The strong revenue growth in our connectivity businesses was offset by declines in video due to customer losses relative to last year. In other revenue reflecting similar dynamics in wireline voice and in advertising, which was impacted by a tough macro environment in addition to lower political revenue in our domestic markets. On the expense side, every expense line item declined in the first quarter with the exception of direct product costs, which are success-based and directly associated with the significant growth in our connectivity businesses. The strong execution by the team to deliver sustainable operating efficiencies coupled with solid growth in our high-margin connectivity businesses resulted in Connectivity & Platforms EBITDA growth of 4% to $8.1 billion. As I mentioned a moment ago, we achieved an adjusted margin expanding 160 basis points year-over-year. And that is despite some temporary margin headwinds in our international business associated with some pressure on revenue due to a challenging macro environment and higher programming costs for sports channels, which were up this year given the timing of events. Margin for our domestic legacy cable business improved 250 basis points reaching a record high of 46.5%. We've added disclosure this quarter and going forward to break down profitability between residential and business services. Residential Connectivity & Platforms EBITDA grew 3% with margin improving 140 basis points to reach 37.8%, highlighting favorable revenue mix shifts. Business services connectivity EBITDA grew 8% with margin expanding 150 basis points to reach 58.3%. Over the years we've talked about business services as a driver of margin-accretive growth, and we're excited to augment our disclosure in this area for the first time. Our results in the quarter and our new reporting structure clearly show that. This is a business that generated over $5 billion of EBITDA in 2022 with substantial growth ahead and should be a material contributor to our growth profile in Connectivity & Platforms and overall. Wrapping up on Connectivity & Platforms, I'm proud of the team successfully navigating a transition in which we're managing businesses that have secular headwinds with an appropriately high level of cost discipline, while investing in others that clearly have strong revenue growth and margin characteristics. Now let's turn to Content & Experiences. Content & Experiences revenue decreased nearly 10%, reflecting the difficult comparison to last year, which included $1.5 billion of revenue from the Winter Olympics and the Super Bowl reported in our Media segment. EBITDA decreased 1%, as a record first quarter at parks and strong studio growth driven by a successful film slate was offset by the planned increase in our Peacock investment as well as lower linear advertising sales. Unpacking these results further, Media revenue decreased 21% on an as-reported basis and 2% when excluding the Olympics and Super Bowl, primarily due to a 6% decline in domestic advertising reflecting softness in the overall ad market, which appears to have stabilized, offset somewhat by strong growth in Peacock advertising revenue. When you exclude Olympics and Super Bowl, Peacock advertising increased an impressive 90%. Domestic distribution revenue decreased 8%, but was up 4% excluding the Olympics driven by Peacock with distribution revenue up 83%. In total, Peacock revenue increased by 45% to $685 million, led by strong growth in paid subscribers, which were up over 60% year-over-year, ending the quarter with nearly 22 million paid subscribers, which marked another terrific milestone on our path to scaling the service. We're encouraged with the trends we're seeing at Peacock. While we've proven that special content and major events like the World Cup at the end of last year can be significant acquisition drivers, perhaps equally or even more important is sustaining engagement following this type of acquisition content and delivering on retention. We saw that in the first quarter, and we look forward to reporting further momentum in the enhanced disclosures we're now providing for Peacock, including the revenue breakdown between advertising and distribution and costs separated by programming and production versus marketing promotion and other. Another new category that we added to our Media disclosure is international networks. This is mainly distribution revenue for Sky Sports and the low single-digit revenue increase in the quarter was driven by higher distribution revenue, partially offset by the negative impact of foreign currency translation. Other revenue decreased 21% due to lower content licensing. Media EBITDA decreased 26%, including a $704 million EBITDA loss at Peacock. We view Media as one business, and while we have made cost reductions at our linear networks, we reallocated some of these resources to Peacock with the goal of maximizing profitability over the short and long-term across streaming and linear. We continue to expect Peacock losses for the year to be around $3 billion, which we believe will be peak losses for Peacock and then begin to steadily improve. At Studios, this was a great quarter for our film slate with strong theatrical revenue growth, driven by the successful carryover from Puss in Boots Last Wish, which launched at the end of the fourth quarter, as well as new releases such as Megan and Cocaine Bear. While revenue growth was partially offset by lower content licensing at our television studios, the momentum in our film business drove a 13% increase in Studio EBITDA, which also included marketing and promotion expense associated with the April 5th release of Super Mario Bros., which is fueling a strong start to our second quarter. At Theme Parks, revenue grew 25% and EBITDA 46% to $658 million, thanks to a continued rebound following the lift of COVID restrictions and a testament to the significant investments we've made at our parks. While demand and financial results were strong across the board, our international parks drove most of the growth this quarter. With Japan no longer impacted by COVID restrictions, our park in Osaka continued to rebound and we are seeing significant demand for Super Nintendo World, which we opened in early 2021. But given the COVID-related restrictions that were in place, many people couldn't visit the park. Our park in Beijing was also impacted by COVID-related restrictions last year and is now growing at a very healthy rate. Beijing showed strong year-over-year improvement and was profitable in the quarter despite normal winter seasonal headwinds. On the domestic side, Hollywood enjoyed record first quarter results due to the very successful opening of Super Nintendo World, while Orlando continues to trend above pre-pandemic levels. I'll now wrap up with free cash flow and capital allocation. As I mentioned previously, we generated $3.8 billion in free cash flow this quarter and achieved this while absorbing a high level of working capital and making meaningful investments in our network and theme parks. These investments drove a 37% increase in total capital spending, primarily driven by higher CapEx. Content & Experiences CapEx increased by $343 million, driven by parks, with Epic accounting for the majority of this quarter's increase in spend. As we noted on our year-end call, we expect parks CapEx in 2023 to increase by around $1.2 billion, remain elevated in 2024, and then decrease in 2025, the year we open Epic. Wrapping up, since this is my first quarter as CFO, let me reiterate our capital allocation framework. First is to invest for growth in our businesses. We've talked through many examples today, Epic, our broadband network, streaming and aggregation to name a few. Second is to protect our balance sheet position with targeted leverage of around 2.4 times. This is an optimal level we believe to maintain broad and deep capital markets access through a cycle balanced prudently with the opportunity for enhanced levered equity returns. Third is to return cash to shareholders. I'm proud that we bought back $12 billion of stock in the last 12 months, including $2 billion in this quarter, shrinking our share count by 7% in that timeframe in addition to a healthy and growing dividend, which we just increased by over 7% in January. With that, I'll turn the call back to Marci for Q&A.

Thanks, Jason. Operator, let's open up the call for questions, please.

Thank you. Good morning. Two questions, one on NBC and one on wireless. This is probably for Mike. Mike, when you look at NBCUniversal, you got probably businesses that are doing better than ever when you look at parks and your studio, and obviously there's a lot of disruption in the media business, and I'm just wondering, given the management change and sort of your broader role, is this an opportunity to revisit that business strategically, operationally, from a cost structure point of view, just with fresh eyes? I realize you've been obviously President and watching that business for some time, but just wanted to hear your thoughts just given all that's going on at NBC? And then maybe for Dave, the wireless business is continuing to scale. You talked about demand for current converged offers being clear and strong. What are your ambitions here as you look through the rest of 2023 to continue to accelerate the growth in that business? How do you guys drive that penetration of your broadband base meaningfully higher? Thanks everybody.

Hey Ben, it's Mike, so I'll jump in. Thanks for the question. So I appreciate the comment. I have been here, it's hard to believe, it's going to be in two weeks, I've been here for eight years as a partner to Brian and the rest of the leadership team. So it is correct that I've been close to all these things, not just recently as President for the last half year or so, but really since I joined. So in thinking about the strategies of NBC, I would think the way you should think about it is the way we operate across the businesses, including NBC, is that the strategies were developed by the entire leadership team. Brian mentioned how great a team we have across the diverse collection of businesses, parks, studios, TV, streaming services, news, sports. So you can imagine that strategies are put together by those teams of leaders, obviously in conjunction with the ultimate leader and then with Brian and myself. So we've been deeply involved for a long, long time in what those strategies are all about and in tracking how we're doing. So, while it's unfortunate to have an unexpected change in leadership, I would tell you it is not, there is no reason for anyone to think that we're going to be revisiting strategy as a result of that. It’s all by itself. Well obviously we act as the environment around us changes, but as you pointed out, the businesses are performing really well right now. So job number one for me is to just settle things down and make sure the businesses and the business leaders at NBCU remain focused on the job at hand. I feel actually, in the first several days of this, that that's well underway and I frankly don't think the business is going to miss a beat. With that, I'll hand it over to Dave.

Thank you, Mike, and hello Ben. So on wireless, wireless continues to be a key part of our overall strategy. Stepping back for a second, we really like the start to the year in our trajectory. This quarter we set another first quarter record in net line additions of 355,000 and so this puts us at 5.7 million lines. So good start to the year, and we're still less than 10% penetrated to broadband. So it gives us a long runway ahead and to your point of looking out to 2023. But our strategy is to focus very much on our core service offerings of by-the-gig which we still have and use, unlimited tiers, and this gives us a strong, real strong value proposition to all segments that we serve. So it's important to note that we leverage mobile in all aspects of how we go to market, in acquisition, base management, and retention. And so mobile does very well in all three, but as connects are a little bit softer through this cycle, base management has been very strong as we go to existing customers and provide a great upgrade opportunity for them. So our pricing focus is our core services, but we do go in and out in terms of promotions with gift cards, some device subsidies that we've historically done, really no different there, but we also had a $50 combined broadband mobile offering that all helped. There was a little bit of a lift there and a great value message to the existing base. So yes, long-term, less than 10% penetration. Lot of upside for us in wireless and a large revenue pool that we have that I think a unique position given our broadband network is ubiquitous. Our go-to market mobile opportunity is ubiquitous within our footprint. And so you look at it, there's upside in residential and commercial, there's domestic and international upside with mobile. There's an opportunity for us to consider long-term cost side with offloading traffic.

Thanks everybody.

Thanks, Ben. Operator, next question please.

Hi, two questions if I could. First, you reported really exceptional margins in what would have been your old domestic cable business. I'm wondering if you could just talk about the contribution to that improvement from wireless. The extent to which wireless is either offsetting the customer acquisition cost or just the gross margin rate and how that's impacting margins overall? And then on the NBCU side, the NBA playoffs have had exceptionally good ratings and there's been a lot of talk about your potential interest in the NBA. I wonder if you could just discuss that a bit and maybe just talk about what role sports might play as you go forward with Peacock and your NBC business.

Hey, thanks Craig. It's Jason. Let me start with the margin question and I'll turn it over to Dave after that for some follow-up and then over to Mike on the NBA question. So on margins overall, I'm pleased with the quarter. Obviously we grew connectivity margins broadly by 160 basis points year-over-year. We've said in the domestic cable business margins are up 250 basis points to a record 46.5%. So really strong margin performance. I think when we look at the drivers of that, number one, mix shift high margin businesses, i.e. the connectivity businesses, broadband, business services, wireless, sort of in that category, say $10 billion book of business growing at 7% and it's margin-accretive. In addition to that really strong expense management by Dave and the team, if you look at every expense category outside of direct product costs, which are the costs that go into feed the connectivity business growth, every single category is down year-over-year. So I think really strong performance on margins in general. As we look at wireless in particular, I put it in the broad bucket of the connectivity category. It obviously supports and augments broadband, which is one of our, if not the highest margin product, and so wireless is a contributor to that.

Hey, Craig, this is Dave. Looking at the domestic margins, at 250 basis points and 46.5%, there's a lot to consider. As Jason mentioned, it all begins with the margin-enhancing connectivity businesses, including both residential and commercial segments. We continue to see benefits, even as transactional activity decreases. We're consistently focused on enhancing the customer experience and eliminating unnecessary transactions. We also maintain discipline by concentrating on fixed costs, examining every area of our business for ways to perform well, remain competitive, and reduce unnecessary expenses. Additionally, one of the strengths of Cable, particularly at Comcast, is our ability to utilize our existing network and operational capabilities to branch into new business lines. Business services is a prime example, and wireless represents another opportunity where our existing sales channels and capabilities allow us to operate effectively. It plays a significant role in the connectivity narrative. We excel when we can capitalize on our strengths, which will continue to be our network and our market strategies that we've successfully executed over the years. In everything we do, from inbound sales to digital efforts, we leverage our wireless capabilities.

And Craig, it's Mike. On the NBA, obviously a tremendous product, and the playoffs are great. I think the negotiations there are ways out, but obviously NBC Sports does a great job partnering with the leagues we partner with, broadcast, streaming, and otherwise. So time will tell, but as we look at things, we always look at an overall financial envelope, what's the right portfolio of overall sports rights we want to have, and do that in a way that, as we've said, and Jason said earlier, we manage our linear and broadcast and Peacock as one business. So that's the way we would look at any of the rights that are out there in the future.

Thanks, Craig. Operator, next question please.

Oh, thanks so much. Two questions for Dave actually, first on broadband. I'm just curious, both from a competition standpoint and health of the consumer viewpoint, how voluntary and involuntary churn are trending, and how the base reacted to the price increase this cycle versus prior cycles? And then, secondly, I know it's relatively recent, but I'm just curious on the plan upgrades with 10 G launched in February and progress in 40 markets, that was highlighted in the slideshow. If there's any kind of practical experience in the marketplace as to how the network is reacting and how the consumer is reacting post-upgrades? Thanks.

Thank you, Doug. To address competition and churn, the overall environment indicates that while transaction activity has generally decreased, competition remains intense. However, our churn rates are at record lows compared to the pre-pandemic era, and we are not experiencing significant increases in churn due to competition. Although there is some effect on connection rates—partly due to lower transactional activity and partly from competitive pressure—it is more noticeable in connections and somewhat in video services, as we see a drop in video attachments. Our broadband segment remains stable with 32 million residential customers, and our churn rates are quite healthy, significantly below pre-pandemic levels. We closely monitor the competitive landscape every day, and despite challenges from fixed wireless and fiber providers, we are performing well across all tiers concerning churn. We have not observed any notable spikes in voluntary or involuntary churn related to economic factors. At the end of the year, we plan to test 10G, and I anticipate that next year will be significant for this advancement.

This is Brian. I just want to add one thought. The last point Dave made was explained very well. I want to emphasize how much I believe that positions us strongly. If you consider the shift from linear to streaming, that trend is certainly going to continue. It seems very likely. We are well-equipped to provide increased capacity, and with our vision for 10G, we have a clear direction set by the team. We know what we want to offer to customers in the coming years. As demands increase, we will be the network ready to deliver. Being the provider of all that connectivity is a special position to be in.

Thanks Doug. Operator, next question please.

Thank you. I have a broader question about NBCU and a smaller one regarding cable. Mike, as the President of Comcast and the Head of NBCU, you're managing two significant roles. Is the current solution permanent? Moreover, the media landscape has transformed considerably since NBCU's acquisition over a decade ago. Can you discuss both the cyclical and long-term challenges and opportunities, including the potential WGA strike, Disney's ongoing issues in Florida with Governor DeSantis that could impact Universal theme parks, the necessary scale to compete in direct-to-consumer, and the various possible outcomes for Hulu that could greatly influence your business? On the smaller cable front, is the loss of video services accelerating? What is your perspective on this trend—is it likely to continue or do you foresee a return to stability?

Okay, Jessica, it's Mike. I'll jump in. The short answer to your question is that I believe my oversight of NBC is quite sustainable. As President, I was already involved with the NBC and Cable operations and was close to the leaders running those businesses. It's crucial to recognize that we have high-quality operators and leaders across the company in various locations like Philadelphia, L.A., New York, and Orlando. While I may need to put in some extra effort, I'm energized by the opportunity to engage more deeply with the NBCU businesses and their leaders. Since I'll be here for the long term, I believe this will benefit both me and the company. I don't see any immediate need to rush into changes; my focus is on ensuring the businesses operate smoothly, which they currently are, and I see that continuing. Though we may eventually consider other approaches, I'll always be closely connected to the businesses and will take responsibility for the outcomes. Regarding cyclical versus secular trends and the various challenges we face, all of that is incorporated into our plans. When considering our Content & Experiences and Parks businesses, which are performing exceptionally well with substantial growth investments, it's important to separate them from the challenges facing traditional television consumption. Our Parks business is highly valuable and continues to grow. In the traditional TV sector, this is precisely why we're focusing on Peacock. We now have 22 million subscribers, up from 20 at the end of last year and 15 at the close of the third quarter last year. We're pleased to see consistent engagement levels and low churn as we move through 2023, with exciting content planned for the remainder of the year. Our strategy for the Media business is strong, and in Studios, as Brian noted, both our film and television sectors are performing excellently under capable leadership. We have significant releases coming up, like Fast 10, and we've seen substantial successes on the television side with more on the horizon. Our Studio strategy remains flexible, not restricted to our own platforms like Peacock or linear channels. There's lasting value in that area, regardless of how certain trends develop. I’ll leave it at that for now and discuss more details at a later time. I won't comment on Hulu, and we hope to reach a fair resolution that avoids a strike, which is what our team is preparing for.

You got it. Hey Jessica, Dave here. On video, we continue to segment the marketplace and have many options. The main point is the decline in video attachment. Our approach is not to subsidize unprofitable video relationships. I shifted my focus some time ago to emphasize the overall relationship and connectivity opportunities. One key point to understand is that we have seen an increase in customers dropping video, but those customers are still retaining broadband. Our total disconnect churn for both video and broadband is at record low levels and has decreased nearly 25% since the pre-pandemic period. We are managing through the cycle, and we will remain focused on certain video packaging based on the segment. We will work hard on acquisition, base management, and retention. This is important to us, and we have found a way to manage it financially. Looking at broadband, the net result is that it's performing well and maintaining its base. As the market continues to shift towards streaming, I believe we are in a strong position. We have also invested in our platforms, including Flex, X1, and the new Charter JV with Xumo, which we feel optimistic about for the long term. Yes, there has been a slight increase in video losses, but we've managed to offset that with some of these platform relationships that I believe will be critically important in the future.

Thanks, Jessica. Operator, next question please.

Yes thanks. It's sort of a two-part question about connectivity CapEx. You seem pretty comfortable that you can continue this pace of footprint expansion within that CapEx profile you previously talked about. You also seem pretty happy with the traction you're having as you broaden the footprint. So I'm curious how you think about the merits of maybe building even faster, whether that's organically or if you would simply be waiting to see whether it makes sense to participate in some of these government subsidy programs. And then I think in the past, you provided some statistics about this enormously high share of your customers' true mobile traffic that happens in a very small portion of your geographic footprint. That data point alone would imply that there's a very high ROI associated with deploying your own mobile infrastructure and bringing that on net. And you obviously have all the resources you need to do that, including spectrum. I'm curious why that hasn't happened yet? Or what would be the circumstances under which that could become a really attractive use of incremental capital investment in the connectivity business?

Brett, it's Jason. I'll begin by discussing the CapEx and then collaborate with Dave on mobile offloading. Regarding CapEx, we have projected a capital intensity of 10% for the year, which matches last year’s figures for Connectivity & Platforms. We finished the year at 10%, so it's consistent year over year. In terms of major categories affecting capital intensity in that segment, these include customer premise equipment, scalable infrastructure, and line extensions. Fortunately, we're seeing some relief in customer premise equipment. Scalable infrastructure involves enhancing our existing capabilities, particularly with DOCSIS 4.0 and our mid-splits, where we plan to ramp up significantly over the next couple of years. Line extensions refer to our efforts to expand our service footprint into new areas, whether for residential or business services. We’ve set a target of 850,000 new builds last year, increasing to 1 million this year, which represents a 20% growth while maintaining a similar capital intensity year over year. We believe we are running the business efficiently, considering the surrounding network dynamics. As for increasing our efforts with upcoming programs, we believe our advantages in product technology, management, and cost of capital will be beneficial for the economics of new builds or overbuilds. The previous cycle was somewhat muted due to a favorable economic environment with low capital costs, leading some companies to evaluate temporary opportunities that might not hold long-term. We generally avoided those prior programs. However, with capital market activities shifting and costs rising slightly, we believe that these trends will accentuate our strengths. So, as we move from 850,000 to 1 million new builds this year, we would be open to the possibility of even greater numbers in the future.

It's Mike. I want to emphasize that we're not aiming to restrict ourselves to around 11%. Agreeing with Jason, I believe we can manage the increase to 1 million, which is positive. We see solid economics in that, and we'd be open to the possibility of spending more on additional passings if we determine it would yield a good return.

This is Dave. Brett, we are pleased with our progress. Both Jason and Mike referred to reaching the 1 million mark. Although it's still early, we’re off to a solid start, and I’m optimistic about it. We have three main areas of focus: expanding our existing network within our current cable footprint, increasing activity in housing and new construction, and pursuing hyper builds for commercial projects, along with edge-outs that benefit from subsidies. We're feeling positive and are committed to a disciplined strategy, leveraging every opportunity while expecting our historical returns. Regarding mobile offload, we view this as an interesting and promising opportunity given the current circumstances. We’ve indicated that 60% of our traffic is around 3% of our footprint, and we are continuously monitoring that. We are collaborating closely with Charter to analyze the outcomes. We also have an effective capital-light MVNO that benefits both our partner and us in the long run. We will keep focusing on optimizing costs for offloading in high traffic areas, and we’ll provide updates as we continue testing throughout the year.

Thank you, Brett. Operator, we'll take our last question please.

Thanks for getting me in guys. Two if I can. Maybe first following up on broadband, Jason, you mentioned success from a low-end broadband product at the end of the quarter. How do you see the return on that, and is it something you plan to sustain? How should we think about the impact in the second quarter versus typical seasonality? And then second, you mentioned that Orlando is trending above pre-COVID. Can you talk about recent trends in the domestic parks? Any indication of attendance shifts or costs? Thanks very much.

Let me begin by discussing our offer strategy and its implications as we head into Q2, providing some overall context. When we take a broader view, the broadband base remains quite stable in terms of churn, and we are observing less pressure to connect compared to before. Our approach is very disciplined; we segment the market and adjust our offers accordingly. Recently, we introduced an offer for broadband only at $25 and $50 for a combined mobile service, which resulted in a positive uptick in uptake. We continually adapt our service offerings and maintain a strong focus on the higher end of the market while recognizing the importance of having a diverse tier mix. About one-third of our customers opt for 1 gig, and nearly 75% use 400 megabits or more. This diverse offering helps explain the growth in average revenue per user for broadband. We remain agile in responding to competitive pressures across different segments. We recognize increased activity in fixed wireless for lower-tier offerings, and this has worked well for us. As we look towards the second quarter, we are experiencing typical seasonal patterns, particularly in regions like Florida, which will likely result in a decline in net additions from Q1 to Q2. While we don't expect precise performance comparisons to historical data, it is clear that net additions will be lower in Q2.

Just to round out the question on broadband, Phil, because it's a good one. In this type of competitive environment, I think one of the key questions for us and the team is can we segment the base appropriately to sort of tactically respond at the low end but without disrupting the broader base. And one of the things I'm most proud of this quarter from the team is 4.5% ARPU growth, which I think really points to that.

It's great to conclude with the parks because overall, the business is thriving. I must highlight the impressive performance of the international segment this quarter. USJ achieved record highs in attendance, revenue per capita, and EBITDA for a first quarter, marking the best since it opened in 2001. Similarly, in China, we saw substantial profitability during a challenging season and the highest quarterly attendance recorded, even in winter. On the domestic side, performance remains strong as well. Hollywood experienced a boost with the opening of Super Nintendo World, leading to excellent attendance and revenue per capita that surpasses both last year and pre-pandemic levels, backed by fantastic guest feedback. Orlando also delivered solid results this quarter. As you may recall, last year we experienced unprecedented visitation well above 2019 levels pre-COVID. While growth rates have naturally slowed, overall performance remains robust. Forward bookings also look promising, reflecting a similar trend to Q1 of last year. So far, everything appears to be on track as we anticipate the future on the domestic front.

Thanks very much.

Thanks, Phil. That concludes our earnings call, and thank you all for joining us.

Thanks, everybody.

Thank you.